No one seems to challenge the oft-heard assessment that high taxes are a serious problem in Indiana. Stories abound in the media about families struggling to deal with high tax bills, or about businesses that have closed or moved away, citing the tax burden as a contributing factor. Indeed, the highly visible activities of the state and local governments in putting together packages of tax breaks and other incentives to lure investments like Honda or Rolls Royce to Indiana supports the impression that without such special breaks, our tax climate would scare those investors away.

As popular as this notion may be, particularly for those of us interested in getting a few bucks back from the tax man, the facts tell a completely different story. Indiana is not a high tax state by any stretch of the imagination. Among Great Lakes states, in fact, our per capita tax burden is the lowest by a fairly wide margin.

We admit that ourselves, when we favorably compare the cost of living in Indiana to elsewhere in the nation. When we think about moving elsewhere, or we try to convince our adult children -- or potential workers, if we’re a business owner -- to consider living here, the affordability of Indiana is part of the sell. And part of what makes Indiana affordable is its taxes.

Don’t believe me? Look at the evidence. In 2002, the most recent year for which good cross-comparison data are available, taxes collected by state and local governments in Indiana were just shy of $17 billion, which was $2,760 per man, woman and child statewide. That’s less than half the $5,717 collected per person in the District of Columbia, home of the nation’s highest tax burden, and lower than 29 other states. It is also significantly lower than per capita taxes in neighboring Wisconsin ($3,421), Illinois ($3,303), Ohio ($3,171), and Michigan ($3,052).

But not all taxes are equally despised, and the property tax in particular is more loathed than any other. How does our state compare with others in average property tax burden?

Not as well, at least according to the 2002 data, which pre-dates the tax restructuring that took removed the school levy from Indiana property tax bills. Indiana’s per capita property tax burden of $977 was higher than neighboring Ohio, which has substantially higher income taxes, but still lower than 19 other states. Many of those states do not have substantial property taxes, opting instead for higher sales and income tax rates.

Of course, one reason why these average tax collections are lower in Indiana is because the base is lower here than in many places. There is no joy in the fact that average earnings per job in Indiana are 88 percent of average earnings nationwide, and that unfortunate fact makes per capita tax collections lower here, even if the average tax rates were the same. We can attempt to represent that by comparing tax collections per dollar of state income, instead of per person.

A lot of things change when you make this adjustment, but not much changes for Indiana. Indeed, with state and local tax collections representing about 9.9 percent of total state income, we remain a low tax state, ranking 31st among the 50 states and the District of Columbia. Relative to income, Wisconsin and Ohio appear among the ten highest tax states, with 11.4 and 10.8 percent tax shares, respectively. Massachusetts actually has lower taxes than Indiana relative to income, with 9.6 percent of income going into tax coffers there.

There are a lot of extremes hiding behind these average figures, of course. There is no question that Indiana has some poorly designed, needlessly painful taxes in its portfolio, and that property tax rates in some jurisdictions are onerous. But we have also thus far avoided the graduated income tax – with no inflation adjustment to bracket definitions – that has produced higher and higher effective tax rates in many other states.

The upshot is that taxes in Indiana are fairly low compared to our neighbors, as well as the rest of the country. And an informed debate on the public sector ought to recognize that.

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

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